Merger and Acquisition Activity is Heating Up in the Cannabis Industry

Date :

12/07/2017 @ 8:45AM

Source :

NetworkNewsWire

Stock :

Hemp, Inc. (PL) (HEMP)

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0.0234 -0.0009 (-3.70%) @ 4:03PM

Merger and Acquisition Activity is Heating Up in the Cannabis Industry

NetworkNewsWire Editorial Coverage: Merger and acquisition (M&A) activity in the cannabis industry is heating up, and market analysts point to several important factors contributing to increased activity. Profit is always a central issue, and as the founders of companies established years ago seek attractive exit strategies, new players are considering ways to enter the field in a profitable way. The rapid evolution of technology and its increasing application also serve as catalysts for M&A, as larger companies pursue opportunities that are positioned for current or near-term commercial availability. Such expertise and assets developed by smaller brands could potentially turn them into attractive targets for M&A activity. Lexaria Bioscience Corp. (OTCQB: LXRP) (LXRP Profile) is one such potential target due to its proprietary technology for improved taste, rapidity and delivery of bioactive compounds, including cannabinoids. Other industry reps that have made valuable contributions to cannabis product development include Canopy Growth Corp. (OTC: TWMJF) (TSE: WEED), Aurora Cannabis, Inc. (OTCQX: ACBFF) (TSX: ACB), Radient Technologies, Inc. (CVE: RTI) and Hemp, Inc. (OTC: HEMP).

As Canada prepares to legalize the recreational use of marijuana next summer, the push for M&A becomes even greater. Since the beginning of the fourth quarter of 2016, an average of approximately 3.2 deals have been closing per week well into 2017 (http://nnw.fm/vC8CU). In comparison, the average for the same period one year ago was approximately 1.4 deals. Analysts note an increase in interest from Canadian companies that wish to cross the border to become a part of the U.S. cannabis industry.

Generally, M&A activities focus on companies and facilities that already have well-developed positions in the field. In 2017, one of the oldest marijuana dispensaries in Denver sold to a Colorado enterprise (http://nnw.fm/ur6vC). The fate of the two-best selling marijuana retailers in Washington was similar. The initial price tag set for the two businesses was $50 million (http://nnw.fm/UTn2Y). Developments on the Canadian market have also been pretty dynamic in 2017. The trend will potentially be upheld in the year to come and strategic interest will fall on innovators in the field of cannabis extraction and CBD oil delivery.

For Lexaria Bioscience Corp. (OTCQB: LXRP), the company has several notches in its belt that could stimulate its potential as an attractive acquisition target. Lexaria is a revenue-generating biosciences company focused on improving the delivery of bioactive compounds through gourmet foods. The primary differentiator between Lexaria’s products and others on the market is the company’s patented delivery technology for non-psychoactive cannabinoids.

In addition to being cost effective, the company’s DehydraTECH™ proprietary technology has been proven in both the laboratory and market to enhance the performance of beneficial compounds in ingestible products in what regards smell, taste, action duration and bio-availability and absorption. This allows for lower overall dosing and higher efficacy, a plus for cannabis suppliers and consumers alike.

The technology works with all ingested forms of cannabinoids, making Lexaria an enabler rather than a competitor, and allowing the company to develop partnerships with various biotech companies for cannabinoid research and development.

In October, Lexaria grew its portfolio of 19 international patent applications when it received patent allowance for DehydraTECH™ as a delivery platform for all cannabinoids, including (tetrahydrocannabinol) THC, fat soluble vitamins, non-steroidal anti-inflammatory pain medications (“NSAIDs”) and even nicotine. Upon formal patent issuance, the company will receive protection for its technology until at least 2035, and Lexaria will be in the prime position to accelerate its technology out-licensing activities in several key markets.

“This wide-ranging patent allowance from the USPTO exceeds our expectations. This vastly expanded intellectual property protection will enable us to aggressively pursue new business opportunities in 2018 such as what could be the world’s first nicotine edibles for the smokeless tobacco industry, or enhanced products for NSAID-derived pain management, as well as in the rapidly growing cannabis market,” Lexaria CEO Chris Bunka stated in the press release (http://nnw.fm/2iPIn).

Because Lexaria’s patented lipid-delivery technology can be successfully applied to cannabinoids, vitamins, NSAIDs and also tobacco, the company is positioned for opportunity in several lucrative markets.

Global demand for tobacco and nicotine products continues to grow, placing the global tobacco market at approximately $770 billion. However, demand for alternative tobacco and nicotine products aimed at reducing the risks of smoking is also growing at a rapid pace. Lexaria’s technology offers a safer, healthier alternative to traditional nicotine delivery systems by allowing the infusion of nicotine molecules with different edible food ingredients or in capsule formats (http://nnw.fm/Xqw5T). Edible or capsule forms of nicotine have largely been unsuccessful so far in terms of manufacturing, but Lexaria’s technology can overcome any such challenges and lead to the creation of nicotine-infused products without any dangerous side effects.

Currently, Lexariais the only company in the world that holds a patent for the improved delivery methodology. The patent is valid for the U.S. and Australia, and it is currently pending for 40 other countries. As the company’s market reach and application of technology grow, so does brand recognition and its visibility among larger companies looking to add to their portfolios. This puts Lexariain an advantageous position when it comes to strategic industrial partnerships and possible acquisition or merger.

Another sweet spot for Lexaria is Canada’s increasing favor toward cannabis. Canadian regulators in November 2017 began discussing the legalization of cannabinoid edibles and beverages for the first time, and the Canadian government has committed to the date of July 1, 2018, for the nationwide legalization of recreational marijuana. As regulators open up the markets in 2018 and 2019, Canadian licensed cannabis producers are facing explosive demand for their products, and could significantly benefit from Lexaria's delivery platform.

A recent investment into Canopy Growth (OTC: TWMJF) (TSE: WEED) by Constellation Brands, the $40+ billion company behind Corona, Modelo and Svedka is one example of how M&A activity within cannabis is crossing borders into the likes of tobacco and alcohol, as Canada prepares to legalize marijuana for recreational use (http://nnw.fm/zkGu5).

Canopy Growth has long been open to industry partnerships and business interactions aimed at stabilizing its market position. In November 2017, the company announced a distribution agreement with the Winnipeg-based Delta 9 Cannabis Inc. Delta 9 focuses its activity on growing small batch medical cannabis strains for the purpose of developing a diversified range of products. Also in November, Canopy Growth entered another strategic partnership with Green House Holding North America Inc. and GHSC Trading B.V. for the purpose of bringing new products to the Canadian market.

Notably, Lexaria’s patented technology could ensure leading market positions for businesses like Canopy Growth, potentially serving as the fine line between success and failure in an increasingly competitive environment.

Aurora Cannabis (OTCQX: ACBFF) (TSX: ACB)is another prominent player on the Canadian market that demonstrates increased M&A and investment activity in the cannabis industry. Aurora on November 24 announced the launch of a takeover bid for CanniMed, which will enable the company to benefit from Aurora’s leadership position in the Canadian cannabis market. Just a day earlier, Aurora announced its acquisition of H2 Biopharma, a company recognized for its 48,000-square-foot cannabis production facility located in the vicinity of Montreal. Also on November 23, Aurora Cannabisannounced the acquisition of Larssen Ltd. – a company known for the creation of high-quality automated greenhouses.

Earlier this week Aurora Cannabissaid it will increase its investment in Radient Technologies (CVE: RTI) to a total of $12 million, echoing the need for increased supply in the Canadian market.

"With multiple Aurora facilities coming online and ramping up production in the coming quarters, as well as the anticipated export of cannabis oils and preparations for the legalization of adult consumer use in Canada, Radient's planned expansion positions both companies exceptionally well to accelerate revenue growth," Aurora Cannabis CEO Terry Booth stated in the news release (http://nnw.fm/JYs3k). "This investment reflects our strategy to build a constellation of vertically integrated partners and subsidiaries, and we look forward to jointly pursuing further expansion of market share in this exiting space."

M&A activity isn’t just commonplace among industry giants like Constellation Brand or Aurora Cannabis. Hemp, Inc. (OTC: HEMP) recently announced its acquisition of specialized equipment and technology for enhancing the company’s extraction operation that will be assembled shortly. Currently, Hemp Inc.has the largest multi-purpose industrial hemp processing facility in the Western Hemisphere with many investments in innovation as well as acquisitions of specialized equipment over a long-time period. In August 2017, the company got its NuAxon Tech CO2 supercritical extractor – an essential step towards the completion of thorough extraction infrastructure that will allow for more efficient CBD oil product manufacturing.

M&A activity will focus on unique assets and well-established facilities with the potential to guarantee leadership positions on both the Canadian and the international markets. As regulators continue to open up the cannabis industry, they could fuel even higher rates of activity in 2018 and beyond. For companies like Lexaria, this could mean an exponential amount of potential for licensing agreements, key partnerships and potential acquisition activity.

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